For eCommerce businesses, replacing damaged or lost products costs far more than the product was worth. According to some studies, businesses may pay as much as 17 times the value of the product to return or replace a damaged or lost item.
Since nearly half of modern online retail shoppers expect their packages within 2-3 days, delays factor into returns as well. The cost of not only lost/damaged but also undelivered and delayed packages can therefore cost eCommerce businesses a small fortune. Customers will expect not only a refund of the purchase price but also of the extra they paid for expedited shipping times.
In any of these eventualities, shipping insurance provides eCommerce businesses with a safety net. Rather than cover losses with your profit margins, shipping insurance provides your business with a fallback, though it will be an additional expense in your fulfillment process.
In this article, we discuss:
- What shipping insurance is
- Who can benefit from shipping insurance
- The cost of shipping insurance
- How a 3PL can help
What is shipping insurance?
Businesses can pay for a service that protects their merchandise while in transit. Shipping insurance reimburses businesses for the item’s value if it is lost, damaged, delayed, or stolen. However, the parameters of repayment can vary between services.
Shipping insurance can be purchased through several parties, including the mail carriers themselves as well as some third-party vendors who provide the service. Businesses must declare the value of the goods being shipped, which is the amount that will be reimbursed if something happens.
It’s worth mentioning that some mail carriers offer shipping insurance for free up to $50 or even $100 for both domestic and international deliveries. Others, such as USPS, only offer this service for express mail users.
As an eCommerce business, you should know that recovering this money requires you to file a claim with the carrier first. The major mailers like FedEx, UPS, and USPS offer directions to do this on their sites.
Who Can Benefit from Shipping Insurance?
Anyone can purchase shipping insurance, even individuals sending gifts or running small stores off of eBay. However, due to the aforementioned free insurance on many orders and the low order volume, most people will not have to make use of it.
For eCommerce businesses, it’s another story. If you ship many items or items with a high average price, shipping insurance can save your profit margins from the cost of deliveries that are lost, damaged, misdelivered, delayed, or stolen.
This benefit will be more or less significant for different businesses depending on their selling model. If you sell high-value products such as jewelry, expensive electronics, or art, shipping insurance can be an essential part of your fulfillment process. Those who sell low-value products frequently may find that the cost of shipping insurance isn’t justified since it may cut into their profit margins too much. For those businesses, using the free insurance some carriers offer or shipping with no insurance may be more viable options.
Therefore, shipping insurance will not benefit every business. But for those who need it, it can provide several key benefits, including recovering the costs of damaged shipments and being able to guarantee the safety of your shipments to yourself and your customers. The value of those benefits to your business will simply depend on your business model.
To determine if shipping insurance is a worthwhile investment for your business model, the logical next question is how much shipping insurance will cost.
The Cost of Shipping Insurance with the Major Carriers
Each major mail carrier calculates shipping insurance costs differently. Here’s a brief breakdown of each.
USPS
USPS includes shipping insurance for free for express mail deliveries valued at $100 or less. Everything else requires a cost:
| Mail Type | Value | Cost of Shipping Insurance |
| Standard Shipping | $50 or less | $1.65 |
| Standard Shipping | $50.01 – $100 | $2.05 |
| Standard Shipping | $100.01 – $200 | $2.45 |
| Standard Shipping | $200.01 – $300 | $4.60 |
| Standard Shipping | $300.01 – $5,000 | $4.60 + $0.90 for every extra $100 in value |
| Express Mail | $100 or less | Free |
| Express Mail | $100 – $200 | $0.75 |
| Express Mail | $200.01 – $500 | $2.10 |
| Express Mail | $500.01 – $5,000 | $2.10 + $1.35 for every extra $100 in value |
FedEx
FedEx offers shipping insurance for free up to $100. Compared to USPS, its calculations are relatively simple.
| Mail Type | Value | Cost of Shipping Insurance |
| All | $100 or less | $0 |
| FedEx U.S. Express | $100 – $300 | $3.00 |
| FedEx U.S. Express | $300.01 and above | $3.00 + $1.00 for every extra $100 in value |
| FedEx International Express | $100 or more | $1.00 for every extra $100 in value |
UPS
UPS offers the most streamlined shipping insurance pricing of all.
| Value | Cost of Shipping Insurance |
| $100 or less | $0 |
| $100.01 or more | $1.05 + $1.05 for every extra $100 in value |
How a 3PL Can Help
Since not all 3PLs deal with shipping insurance, it’s important to ask before paying for their services. At eWorld Fulfillment, we can help you choose a mail carrier to fit your shipping insurances needs as well as add insurance to your fulfillment process based on their criteria.
If something happens, such as an item that is lost, damaged, misdelivered, or stolen, we can file a claim on your behalf with the carrier to see if you are eligible for reimbursement.
Additionally, a detail that not many businesses realize is that mail carriers have terms of exclusion for their reimbursements. For example, if they find that the package was packed improperly, they may deny a claim on damaged goods, blaming your business’s packing process instead.
Since third-party fulfillment companies offer services at every level of your shipping process, they can not only help you file for shipping insurance but ensure that you are eligible for claims when it matters most.
The Takeaway for Businesses
Not every business will benefit from shipping insurance. Though seemingly inexpensive, the cost can add up for businesses that frequently ship low-value merchandise. However, for many businesses, shipping insurance provides a safety net for their high-value sales and peace of mind during the fulfillment process.
Even if something happens, it’s good to know that with insurance, aided by a 3PL’s services, your fulfillment process will have you covered.